Suppose Your Firm Is Operating in a Perfectly Competitive Market

question 120

Multiple Choice

Suppose your firm is operating in a perfectly competitive market, and that the minimum average variable cost of producing your good is $30. If the price of the good is $32, your firm should

• A) not produce anything since the price is above the minimum of average variable cost.
• B) not consider price when determining the amount to sell.
• C) supply the amount of the good where the marginal cost of production is equal to $32.
• D) supply the amount of the good where the marginal cost of production is $30.

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Definitions:

LRMC

Long-Run Marginal Cost, which is the additional cost of producing one more unit of output when all inputs, including capital, are variable.

LRAC

Long-Run Average Cost, a curve that shows the lowest possible average cost of production, allowing all factors of production to vary.

Long-run Elasticities

Measure of responsiveness of demand or supply to changes in price or income, considered over a period long enough for all adjustments to be made.

Short-run Elasticities

Measures of how responsive the quantity demanded or supplied of a good is to a price change over a short period.